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GLOBALISATION OF TRADE - FREE vs FAIR
Trade is our closest daily link with people in poor countries. We buy
everything from Sri Lankan shirts and Brazilian shoes to Colombian coffee and Chilean
grapes. The gap between rich and poor countries is increasing, the Third World has
80% of the world's people but only 20% of its trade. The poorest countries lose out most:
Sub-Saharan Africa's share of global trade has fallen to a third of its 1960 level.
Many poor countries are trapped into selling cheap raw materials and
basic commodities whose prices are vulnerable and have plummeted. Trade
barriers which directly discriminate against poor countries stop them exporting more
valuable manufactured goods. For example, exporting pineapples to Europe, the Philippines
face tariffs of 9% for fruit, 28% when tinned, and 31% for juice.
Over the past two decades, rich countries have increasingly protected
their own economies, via tariffs, quotas and subsidies, while forcing poor countries
to open up theirs. This was done through the General Agreement on Tariffs and Trade
(GATT), which was superseded by the World Trade Organisation (WTO) in January 1995.
If world inequalities are to be redressed, if the poor are to be given a chance, Third
World countries need to be allowed to diversify away from dependency on basic commodities
and to protect their infant industries whilst having access to rich countries' markets.
The highlight of the WTO's First Ministerial Meeting in December 1996 was
the biggest ever trade deal in a single sector abolishing tariffs on information
technology such as computers, software, micro-chips, and telecommunications. This IT
agreement was backed by thirty countries representing more than 80% of information
technology products. This reflects the change in global trade flows, with developed
nations like the UK increasing trade in services, such as banking and telecommunications,
of which it is a net exporter, rather than manufactured products. This agreement may be
good news for countries with advanced IT industries, but for those which haven't, or are
just developing them, it means they will probably never be able to compete.
FREE TRADE
Globalisation is synonymous with economic and market liberalisation, also
known as free trade. It is a neo-liberal theory promoted by Western governments to remove
barriers to trade. Many Southern countries regard it as a way of perpetuating colonialism,
whereby resources were exploited from the South in order to industrialise the North.
The principle of free trade - unequal countries and economies competing
equally, is unfair. Although free trade is supposed to create a "level playing
field", in reality it is heavily biased towards developed countries. A Mexican
partner of CAFOD's has compared this unfairness to "a game of football
where the developing countries' team are dwarves and the developed countries are
giants, the pitch is sloping uphill against the South, whose goal is twice as big,
and the Third World players have no boots".
The globalisation of production and the liberalisation of trade do offer
opportunities, but also increasing risks of instability and marginalisation for those
countries which are unable to seize these opportunities. The poorest countries with 20% of
the world's people have seen their share of world trade fall between 1960 and 1990
from 4% to less than 1% (UNDP Human Development Report 1996). According to UNDP, from
1980 to 1995 only 15 countries in the whole world achieved better living standards,
economic growth and rising incomes, whilst economic decline or stagnation affected 110
countries. Policies promoting free trade, however, remain unquestioned.
FOREIGN DIRECT INVESTMENT
Investment and trade are inextricably linked and the relationship is
becoming more complex. Japanese cars may have their components made in Vietnam, be
assembled in the UK, and sold in Germany. Without foreign direct investment (FDI)
many poorest countries will never be able to enter the global market. Although the net
annual flow of FDI to developing countries nearly quadrupled between 1990-1995 to more
than US$90 billion, Africa's share was only 2.4% per cent. According to the World Bank's
1997 Global Development Finance report, in 1996 all of Sub-Saharan Africa only received
$11.8 billion in private capital flows, whilst China remains top destination with $52
billion.
Inequalities between countries and regions continue to grow, and in a
context of declining aid and overseas development assistance (ODA), the world's poorest
countries are set to become more and more marginalised. However, increased FDI in itself
is not the answer. The effect of uncontrolled investment can be just as negative as too
little. Most FDI is via multinational companies, which are becoming increasingly powerful,
and whose prime motive is profit for shareholders, often at any price. The Multilateral
Agreement on Investment (MAI) is one way of addressing control of FDI. The core
provision of the MAI is that foreign investors should receive the same treatment as
national investment. In theory this sounds fair, but in practice it means that small or
fledgling local companies are competing with huge, well established foreign transnational
companies. Such an agreement would prohibit the protection of key industries which
was crucial to the development of East Asian "Tiger" economies of Taiwan and
South Korea, often used as examples of free trade success stories.
A Multilateral Agreement in Investment is due to be agreed by the
developed countries belonging to the OECD (Organisation for Economic Co-operation and
Development), which collectively provide 80% of global outward investment and absorb
66% of inward investment. A global MAI was proposed at the WTO Meeting in 1996 but was
opposed by many Southern states, and is now being taken forward by UNCTAD (UN Conference
on Trade and Development). The concept of investment includes capital, intellectual
property rights, and concessions over natural resources.
MULTINATIONAL COMPANIES
The words of Sir Walter Raleigh, "Whosoever commands the trade
of the world commands the riches of the world and hence the world itself"
remain as true today as ever. Of the hundred largest economic players in the
world today, 51 are multinational or transnational companies (TNCs) and 49 are nation
states. Today, countries around the world welcome global companies and the jobs,
technology and investment they bring. However, governments have little control over TNC
activities which are often harmful to local people and their environment.
The power of TNCs is enormous: they control 70% of world trade, whilst
one third of world trade is composed of internal transactions within the same
company. They are particularly powerful in terms of food security: TNCs affect 86%
of the world's land that is cultivated for export crops, and 70% of world trade in wheat
is controlled by just six companies. Supermarkets can control every stage of crop
production from what seeds are planted and when, to exact date and method of harvesting.
In relation to investment brought by TNCs, most profits go back to the
company's home country. Between 1965 and 1985, US multinationals took an average of $377
million more each year out of independent African countries (excluding South Africa) than
they put in. Moreover, countries pay for subsidies and tax breaks to attract foreign
investment at the expense of public health and education.
Many multinationals operate double standards with much lower health and
safety regulations overseas and a disregard for basic rights such as minimum wages or free
association of workers. As a result, wages and working conditions are pushed down as
companies move production to developing countries which are forced to compete with those
having lower wages and worse human rights, such as China.
Control of TNCs has been very limited, with non-binding rules set by
UNCTAD in 1980 which are often ignored. It is this failure of international and government
control which has resulted in NGO- and consumer-led action, such as the demand for fairly
traded products and a call for Codes of Conduct for companies sourcing from the
Third World. (See CAFOD's Campaign Action Sheet on Work)
FAIR TRADE
Most people recognise the Fair Trade Mark on a few food products such as
Caf�direct coffee and Maya Gold chocolate, awarded by the Fairtrade Foundation which was
set up by NGOs like CAFOD. This mark is a guarantee that growers enjoy decent wages and
working conditions, and that production is sustainable. It further guarantees
that the most efficient way to get products from producer to consumer has been used,
by-passing speculators and unnecessary intermediaries. The Fair Trade Mark ensures
preferential treatment for trade involving indigenous producer groups, small and medium
scale businesses and equitable distribution of revenues.
In relation to the global trading system, regulations implemented
by the WTO could result in much fairer trade. CAFOD believes that the following should be
made international priorities: i) control of TNCs via strict global competition policy,
including more transparency and accountability; ii) inclusion of a social clause in
international trade agreements which protect minimum global standards for
working conditions; iii) removal of trade barriers which are biased against
developing countries, such as the Multi-Fibre Arrangement; iv) ceilings on government
incentives and subsidies; v) FDI regulation which allows exceptions for developing
countries and infant industries.
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